The Quick Read: Financing the costs fits a homeowner who wants to keep savings in reserve. Paying cash fits one who wants a smaller balance and has the money to spare. Near the VA ceiling, the room to choose shrinks. Once the loan reaches 100% of the appraised value, there is little or no room left to roll costs in, and whatever does not fit has to come from the borrower’s pocket.
That is the whole tension. Here is how it works inside a file, who each path suits, and where files get stuck.
VA cash-out estimate
Seeded with an example value, a typical balance, and a round cash request at the first-use fee; change any field.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a VA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the full-value VA cap with the first-use funding fee financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a VA cash-out refinance quote; a VA loan is priced by the lender at lock. The total loan, funding fee included, is capped at the program leverage on the reasonable value; the fee follows the tier chosen. The cash available is what the cap allows less the balances paid off and the fee, before closing costs, which are not included. The HELOC line is the line program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. The debt-to-income figure is a guideline; residual income decides a VA file. Licensed in sixteen states for consumer mortgages.
Side-by-Side
The two paths run under the same VA rules. The difference is where the costs land: in the loan balance or in cash at the table.
| Factor | Financing the costs | Paying cash |
|---|---|---|
| Loan balance | Higher | Lower |
| Cap room needed | Yes, costs sit under the ceiling | No, costs stay outside the loan |
| Cash at closing | Smaller | Larger |
| Net cash to borrower | Reduced from the same loan | Not reduced by costs |
| Mortgage insurance | None on VA | None on VA |
| Funding fee | Can be financed, and the fee grows with the balance | Can be paid in cash instead |
| Credit floor | 580 decision score on the wholesale programs Lendmire places with | Same |
| Occupancy | Primary residence | Same |
| Documentation | COE, appraisal, residual income review | Same, plus proof of funds |
Nothing about eligibility changes with the choice. Credit, occupancy, and residual income work the same either way. What changes is arithmetic against the ceiling.
What “Near the Cap” Actually Means
The VA cash-out refinance reaches 100% of the appraised value, and that figure includes the financed funding fee. It is not a 90% product. The 90% number floats around because Congress set a 90% limit in 1989, and the Federal Register notice on VA’s cash-out revisions records that history. VA’s later rule changed it. Today 90% survives as one of the listed net tangible benefit options in 38 CFR Part 36, and some lenders keep it as a self-imposed overlay.
Lendmire’s VA cash-out refinance program page covers the program basics. For this article, the point is narrower. A borrower who asks for the full 100% has used the whole ceiling. The payoff, the funding fee, the closing costs, and any cash back all have to fit under one number. The appraisal sets that number.
Three things decide how much room exists:
1. Appraised value. A lower appraisal shrinks the ceiling and can turn a cost you planned to finance into a cost you must pay.
2. Payoff balance. The loan being replaced comes off the top first.
3. Funding fee tier. The cash-out fee is 2.15% on first use and 3.3% after, unless the veteran is exempt. It is calculated on the whole new loan.
The fee loop deserves a plain description. The fee is charged on the new loan amount. If the fee is financed, the loan gets bigger, and the fee is calculated on the bigger loan. Financed costs push the balance up, and the fee follows it up. Near the ceiling, that loop eats room faster than most borrowers expect.
When Financing the Costs Is the Better Fit
Financing works when there is room under the ceiling and the borrower values liquidity. The VA Lenders Handbook, Chapter 6 allows closing costs, including the funding fee, to be paid from loan proceeds, as long as the loan stays within the maximum loan amount. Final terms depend on the lender’s guidelines, the property type, and the borrower’s full credit picture.
Financing tends to suit these borrowers:
- The borrower with low cash reserves. Picture a homeowner with plenty of equity but modest savings. Draining that account for closing costs leaves nothing for a roof repair or a job gap. Moving the costs into the loan keeps the account intact.
- The borrower with room to spare. If the appraisal comes in comfortably above the payoff, the costs fit under the ceiling and the cash-out amount can still cover what the borrower wants.
- The borrower using the cash anyway. On a cash-out where the borrower takes proceeds for debt consolidation or repairs, financed costs simply come out of those proceeds. The borrower never writes a check.
- The exempt veteran. With no funding fee to finance, the loop is gone and the ceiling holds more room for other costs.
The cost of financing is real but quiet. A higher balance generally means a higher payment and more interest paid over the life of the loan. The size depends on the loan, the term, and the pricing on the day of the quote. The Loan Estimate shows the numbers for your file.
Financed costs must fit inside the VA cash-out ceiling of 100% of the appraised value, which includes the financed funding fee. Any cost that does not fit under it is paid in cash.
When Paying Cash Is the Better Fit
Paying cash works when the loan sits at or near the ceiling, or when the borrower would rather carry a smaller balance. Near the cap, part of the costs may have to be paid in cash.
Run the situation through a modeled case. Say a homeowner asks for a loan at 100% of appraised value, and the payoff plus funding fee already uses most of it. There is nothing left to finance closing costs. The remaining costs must be paid at the table, and the borrower needs the funds. The same holds if the appraisal comes in light. A cost that was financed on paper becomes cash owed.
Cash is the better fit for these borrowers:
- The one at the ceiling. When there is no room, the question is settled. Cash covers the portion above the cap.
- The one with savings and a long hold. A borrower who plans to stay in the home for many years and has idle cash may prefer a lower balance and less interest over time.
- The one who wants maximum net proceeds. Cash to the borrower is the new loan minus the payoff minus fees and costs. Financed costs reduce that figure. Paying costs out of pocket leaves the proceeds whole.
- The one avoiding fee growth. Because the funding fee is calculated on the whole loan, paying costs in cash keeps the loan from growing and the fee from growing with it.
The catch is liquidity. Cash spent at closing is gone. A borrower who drains savings to avoid financing can end up with a smaller balance and no cushion. Not ideal.
Trimming the Cash-Out Amount
There is a middle path. A borrower can ask for less cash back and use the freed room to cover costs. Say the plan is a loan at 100% of value with a set amount of cash out. Reducing the requested cash lowers the loan, which opens room for closing costs under the ceiling and may reduce the funding fee too, since it is charged on a smaller loan. The tradeoff is simple: less cash in hand, less cash needed at the table.
Proceeds themselves can also pay the costs. That is financing by another name. The money comes out of the same ceiling, so it does not create room that is not there.
The Rules That Do Not Change With Your Choice
A few VA rules apply no matter which way the costs are paid.
Net tangible benefit. The new loan must meet at least one of the benefit criteria listed in the VA rules. Examples include refinancing an adjustable-rate loan to a fixed rate, or refinancing an interim construction loan. A new loan at or below 90% of reasonable value is also a listed option. Near the cap that one is off the table, so the borrower has to meet another.
Type I and Type II. VA Circular 26-18-30 separates two kinds of cash-out. Type I is a refinance whose amount, including the funding fee, does not exceed the payoff of the loan being refinanced. Type II exceeds the payoff, which means cash goes to the borrower or a non-VA loan is being paid off. In short, only a Type II loan can put cash in the borrower’s hands.
The recoupment test for Type I. The Handbook says that on a Type I loan, if the principal and interest payment goes up, the lender may not charge the veteran loan fees, closing costs, or expenses other than taxes, amounts held in escrow, and the funding fee. If the payment drops, fees must be recouped within 36 months, computed by dividing allowable fees, expenses, and closing costs, whether included in the loan or paid outside closing, by the reduction in monthly principal and interest. Paying cash does not escape that test. The costs count either way. It applies only to Type I loans refinancing an existing VA-guaranteed loan, and it is not the same as the rate-reduction and fee-recoupment tests that govern an IRRRL.
State law. Some states set a lower ceiling on cash-out lending against a homestead, whatever VA allows. Confirm it for your state before planning around 100%.
Where These Files Get Stuck
The friction points on near-the-cap files are documentary and arithmetic, not exotic.
1. A light appraisal. The ceiling moves, the financed costs no longer fit, and the borrower is asked for cash the file did not plan on. Holding a reserve for this is sensible.
2. Funding fee not counted inside the cap. The fee sits under the same 100%. A budget that treats it as extra is short.
3. Proof of funds. If cash is needed at closing, the lender wants it documented. CFPB notes you will typically need a cashier’s check or wire transfer for the amount at closing.
4. Closing costs mistaken for cash to close. They are two numbers. The CFPB’s Loan Estimate explainer defines closing costs as the upfront charges to get the loan and transfer ownership, and Estimated Cash to Close as what you bring to the table. Page 2 of the Loan Estimate has a line for closing costs financed from the loan amount. That line is where the decision shows up on paper.
5. Seasoning. A VA-to-VA cash-out carries a seasoning requirement. On the wholesale programs Lendmire places with, it is the later of 210 days from the first payment and the 6th payment. A file that overlooks this cannot move forward until the timing is met.
6. Comparing the disclosures. Compare the final cash to close and closing costs financed against the most recent Loan Estimate. If the numbers are not what you expected, CFPB says to ask the lender to explain why.
Key Terms Defined
Closing costs: The upfront charges to get the loan and transfer ownership of the property.
Cash to close: The money the borrower must bring to closing, calculated after financed costs, credits, and proceeds.
Closing costs financed: The part of the costs paid out of the loan amount instead of cash.
Reasonable value: VA’s term for market value, set by the appraisal, and the base for the 100% ceiling.
Net proceeds: What the borrower receives after the payoff, fees, and costs come out of the new loan.
Net tangible benefit: A listed test the new VA loan must meet to show the borrower gains something from the refinance.
A Balanced Verdict
Finance the costs when there is room under the ceiling and liquidity matters more to you than a smaller balance. Pay cash when the loan is at or near the ceiling, when you want maximum proceeds, or when you have idle savings and plan to stay put. Neither choice is wrong. The ceiling decides how much of the choice is actually yours.
A practical order of operations: get the appraisal number first, work out the payoff and funding fee, and see what is left. That leftover is your financing room. Anything beyond it is cash.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. For a related read on the same decision, see Lendmire’s piece Rolling Closing Costs Into a VA Cash-Out vs Paying Them Upfront. All figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Can I roll all my closing costs into a VA cash-out refinance?
Only as far as the ceiling allows. The costs, including the funding fee, can be paid from loan proceeds, but the new loan still cannot exceed the maximum loan amount. Anything above the ceiling is paid in cash.
Is the VA cash-out limit 90% of my home’s value?
No. The VA cash-out reaches 100% of the appraised value, including the financed funding fee. The 90% figure is one net tangible benefit option and a self-imposed limit at some lenders. Check state law too, since some states set a lower ceiling.
Does paying cash avoid the 36-month recoupment test?
No. On a Type I loan, fees count whether they are included in the loan or paid outside closing. The test applies to Type I loans refinancing an existing VA loan, and it does not apply to Type II.
Does financing closing costs reduce the cash I receive?
Yes. Cash to you is the new loan minus the payoff minus fees and costs. Financing the costs takes them out of the same loan amount, so net cash drops. Paying them in cash leaves proceeds whole.
What if my appraisal comes in low after I planned to finance the costs?
The ceiling shrinks, and the part of the costs that no longer fits becomes cash due at closing. Keeping a reserve, or trimming the requested cash-out, is the common fix. Compare the final Loan Estimate lines against the earlier one and ask the lender to explain any change.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Federal Register: Revisions to VA Cash-Out Home Refinance Loans
3. VA Lenders Handbook, Chapter 6
5. CFPB Guide to the Loan Estimate and Closing Disclosure
6. CFPB Loan Estimate Explainer
This article is part of Lendmire’s VA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much a VA Cash-Out Lends After Paying Off a Solar Lien · VA Cash-Out Refinance vs Conventional Cash-Out on a Fourplex · How Lenders Underwrite a VA Cash-Out Refinance Compared With Conventional Closing Costs
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.